| Investing for the future is one of those | | | | eat up by inflation. |
| things that can be difficult. None of us know | | | | |
| exactly what the future is and where to put | | | | Investing in a New Society: |
| our money. Many more of us know almost | | | | |
| nothing about investing and prefer to use | | | | The new society will require a much more |
| seasoned professionals. In the end we are | | | | sophisticated investor than what was |
| left with little control over the fate of our | | | | necessary during our parents time. Even |
| retirement. | | | | though the basics of investing are the same |
| | | | such as risk vs. reward, diversification, |
| Conventional Wisdom: | | | | living below your means, etc. are the same |
| | | | the types of investments and the amount of |
| Conventional wisdom says live below your | | | | risk people are willing to make should |
| means, invest, and the government will chip | | | | change. |
| in the rest. We get there through education | | | | |
| and working hard. For the Baby Boomers this | | | | Diversity no longer includes mutual funds |
| made sense but many are now in trouble as | | | | only but the mix of investments in stocks, |
| retirement is only a few years off and more | | | | bonds, real estate, business, and others. The |
| than 50% have less than $100,000 in their | | | | more different sectors of the society you |
| retirement accounts. | | | | invest in the better chance you have of |
| | | | whether declines in the market. For example, |
| During the era of the baby boomers the | | | | real estate may further be invested in vacant |
| mentality drew from their parents which | | | | land, apartments (income generating), office |
| typically lived through the Great Depression. | | | | buildings or houses. |
| During this time there was little employment, | | | | |
| difficulty starting businesses and a general | | | | Risk is a natural part of getting a return. |
| feeling that one must save in order to ward | | | | Generally the higher the risk the more money |
| off serious poverty. The rainy day mentality | | | | to be made but also the more likely it is to |
| has never left us. | | | | lose that money. The same can be said for low |
| | | | risk low returns. In todays market there is |
| A Changed Economy: | | | | some fear that inflation could eat away at |
| | | | ones gains. |
| The economy is definitely going to change in | | | | |
| the next 20-30 years. Some of the changes | | | | Let us say that you are in a fund that pays |
| that are happening are the retirement of a | | | | 6% interest. Not bad? The only problem is |
| large section of the population which will | | | | that a 2006 inflation rate of 3.5% just left |
| need to be taken care of (possible bankruptcy | | | | with an increase of 2.5%. Ummmnot very good! |
| of Medicare & Social Security), the rise of | | | | If you really wanted a 6% return you would |
| oil prices ($4 to $5 a gallon) that will slow | | | | have to make a 9.5% return on all of your |
| the economy down, huge national debt that | | | | investments. |
| exceeds our ability to pay for it (without | | | | |
| rampant inflation from printing money), and | | | | If you follow the advice of mutual fund |
| environmental change (lack of water). | | | | investors there is a good chance you wont |
| | | | have much when retirement comes. That means |
| When the economy changes we will need to | | | | you are going to have to take some risk by |
| change with it. That means society will shift | | | | investing less in blue chips stocks and more |
| to the owners of production and the workers | | | | in small to medium businesses. The key to |
| thereby shrinking the middle class. Thus we | | | | avoiding collapse is to diversify your |
| will be a rich/poor society that will be | | | | portfolio with a basket of smaller companies |
| dramatically different than it is today. All | | | | and investments that have nothing to do with |
| of the conventional wisdom people have been | | | | the stock market (i.e. real estate, |
| relying on for years will be wiped away or | | | | businesses, etc.). |